Posted on 03/29/2015 4:27:50 PM PDT by BenLurkin
Originally developed in the late 1930s by Alvin Hansen (who earns a footnote in the official transcript of Yellen's speech), it was reanimated by former White House economic adviser Larry Summers, who in 2013 asked whether the U.S. may be mired in secular stagnation.
Interestingly, Hansen's theory was that a lack of technological innovations could be to blame for the stagnation; Summers, however, was more focused on an exogenous shock.
In April 2014, Brown University economists Gauti Eggertsson and Neil Mehrotra published a comprehensive model of secular stagnation, showing how income inequality and a drop in population growth could lead the economy's ideal interest rate to fall.
Essentially, Eggertsson's point is that a surplus of individuals looking to save their money, combined with a surfeit of individuals looking to borrow money, can lead the market-clearing interest rate to fall to unusually low levels.
If the actual interest rate is too high (say, because it is at historically normal levels) then money will not flow from the would-be providers of income to the potential users of income. That would cause an economy to become mired in slow growth for longer than the economic cycle would predict—consequently making the stagnation secular rather than merely cyclical.
(Excerpt) Read more at cnbc.com ...
the problem can always and everywhere by traced to government manipulation of markets.
IOW, rather than natural market forces, we should defer to letting our betters run a centrally planned economy.
Our so called betters have been doing that for the last 40 years and the results are pretty evident.
If the actual interest rate is too high (say, because it is at historically normal levels) then money will not flow from the would-be providers of income to the potential users of income.
Only if interest rates are held at that high level artificially. Otherwise the rate would drop to a point where fewer people want to save and more people want to borrow.
1. At any given time there is a fixed amount of labor and raw materials available for production. 2. The interest rate is how the economy balances what could be produced given the resources available against what people are actually willing to pay for when they have to choose. 3. Any government interference in the economy, especially interest rate manipulation, causes investment in the production of things people want less than what they would otherwise have chosen - malinvestments. 4. The accumulation of malinvestments is what causes recessions. 5. Recessions are simply the liquidation of malinvestments and the release of resources back into the market so that they can be redirected into other lines of production.
And the government is, well, secular.
6. Except when career politicians interfere; then a recession becomes an excuse to steal wealth and power from the many and concentrate it into the hands of the few.
Fine if there is no international capital market. Evidenced by say China buying the overspending debt of the Feds.
Funny how these issues were not primary during Reagan,
until “read my lips” came along.
That is not stealing. It is gambling, with interest rates being the balancing factor.
What fools do is to borrow from the future by mortgaging the past to consume in the present, hoping that inflation will make the borrower richer. When that does not happen, and the interest rate is higher than the inflation rate, the lender is the winner. And that is the way it should be, so that saving now will make one richer in the future, not poorer.
The whole criminal scheme of the government forcing banks to lend at sub-prime interest rates encouraged the real estate bubble, giving squatters preference over investors until the bubble burst. The squatters just walked away without paying their debts.
IMHO. But I'm not much of a financial manager. All I know is that the property I bought for $100K in 1984 dollars before subprime rates is now worth about $400K 21 years later, I own it, live in half of it, and the other half produces $13K per year income.
The logic seems to be "too many lenders and too few borrowers leads to declining interest rates", but "surfeit" is a synonym for "surplus", not an antonym.
Seems to me that too many borrowers and not enough lenders would drive rates up.
It is stealing. Interest rates are merely the tool of choice.
OK, so who is the beneficiary(s)? I'm kind of dense on this.
2. The interest rate is how the economy balances what could be produced given the resources available against what people are actually willing to pay for when they have to choose.
3. Any government interference in the economy, especially interest rate manipulation, causes investment in the production of things people want less than what they would otherwise have chosen - malinvestments.
4. The accumulation of malinvestments is what causes recessions.
5. Recessions are simply the liquidation of malinvestments and the release of resources back into the market so that they can be redirected into other lines of production.
It is so simple, isn't it?
Ideologues such as Yellen twist themselves into knots attempting to justify the socialist reality distortion field.
Not secular stagnation, Kondratieff winter.
People who flip Picassos at Sotheby’s and the Regime and its acolytes.
I guess I don’t know any of these luminaries personally.
Looked that up. Interesting!
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